INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Prior period expenditure - Set-off against prior period income -

AO found that the assessee credited Rs. 3,39,534. being net period income, i.e., prior period income of Rs. 46,50,648 minus the period expenses of Rs. 43,11,114. The AO took the view that during the year under consideration the 'prior period income' was taxable, but the 'prior period expenses' were not allowable. In such circumstances, the AO made addition of Rs. 46,50,648 in respect of the 'prior period income' and denied the set-off of the prior period expenses against such prior period income. The AO denied the set-off on the basis that a different set of rules applied to such income and expenses. CIT(A) confirmed the addition on the basis that the prior period expenses cannot be adjusted against the prior period income in the absence of any corelation or nexus. The Tribunal held that once the assessee offers prior period income, then the expenditure incurred under the different heads should be given set-off against that income and only the net income should be added. Held: Once the prior period income was held to be taxable, the prior period expenditure also should be allowed to be set-off and the assessee was not obliged in law to indicate any direct or indirect nexus between the prior period income and prior period expenditure.

Relied:CIT, Delhi v. Shri Ram Honda Power Equip (2007) 158 Taxman 474 (Delhi) : 2007 TaxPub(DT) 0899 (Del-HC), Pr. CIT-1 v. Adani Gas Ltd. [Tax Appeal No. 900 of 2016 decided on 11-1-2017], Pr. CIT-I v. Adani Enterprises Ltd. [Tax Appeal No. 566 of 2016 decided on 20-7-2016], CIT v. Excel Industries (2013) 358 ITR 295 (SC) : 2013 TaxPub(DT) 2414 (SC), Pr. CIT v. Adani Enterprises Ltd. [TA Nos. 566 of 2016 and 573 of 2016 decided on 20-7-2016], Pr. CIT v. Adani Gas Ltd. [Tax Appeal No. 900 of 2016 decided on 11-1-2017], CIT v. Exxon Mobile Lubricant (P) Ltd. 92010) 8 Taxmann.com 249 (Del) and Pr. CIT v. Adani Enterprises Ltd. [TA No. 573 of 2016 decided on 20-7-2016.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2006-07

INCOME TAX ACT, 1961

Section 40(a)(i) Section 195

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